Specialty UK lender Kensington Mortgage Co. has launched its seventh securitization of unconventional prime and near-prime mortgages.
Finsbury Square 2018-1 will involve £636.5 million in seven classes of notes secured by first-lien owner-occupied and “buy-to-let” investor property loans in England and Wales. Most of the loans involve borrowers unable to obtain standard prime mortgage products – including first-time, self-employed, troubled-credit or investor-home buyers.
The transaction includes a triple-A rated Class A notes tranche that will encompass 85% of the final pool size of Kensington’s inaugural 2018 deal. The asset pool as of mid-December was £430.7 million, but the transaction includes a £185 million prefunding account (estimated to be 30% of the final pool size) through which Kensington can acquire additional loans through March.
Fitch Ratings and Moody’s Investors Service assigned the ratings to the senior notes as well as six other classes of subordinate notes in presale reports published Friday (a retention class of notes that will comprise 2% of the final pool size will be held for risk-retention compliance).
The loans were originated by Kensington as well as the "New Street" mortgage brand operated by Kensington's parent firm, The Northview Group Ltd.
Moody’s rates the loans as a mix of prime and near-prime loans, but Fitch considers the transaction a near-prime deal due to Kensington’s focus on “borrowers with some form of adverse credit history or that have complex income.”
Kensington’s loans are also riskier because they are exclusively broker-driven, and include underwriting practices that don’t map prime-lending practices expected by the agency - such as a minimum two years of verified income for self-employed applicants. Kensington relies on a minimum one-year of proven self-employed income.
There is a “high proportion” of borrowers with previous court judgments in the pool (8% according to Moody’s), but none have had prior bankruptcies nor have any had adverse court actions within the past two years.
More than 22.8% of the pool involves “buy-to-let” loans for borrowers purchasing an investment property to lease out, a smaller percentage than the prior Finsbury platform securitization in July 2017 (29.5%), but is slightly lower than previous Kensington-sponsored deals. The loans were issued through a new specialty product that is originated with a Kensington sister company of parent The Northview Group Ltd.
Although the near-prime loans carry more risk than conventional loans, the pool excludes self-certified income and other riskier mortgage products.
The loans are lightly seasoned (all originated in 2017) but come with significant levels of owner equity, with a weighted average loan-to-value ratio of 73.99% of the pool (comparable to prior Finsbury deals). Forty-four percent of the loans are for self-employed, and 25% are interest-only. About 32% of the loans in the cutoff pool are refinanced loans.
